Chapter One:

Ethics and
Business

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 Chapter Objectives
After reading this chapter, you will be able to:

• Explain three levels at which ethical decisions get made in business.

• Explain the nature of business ethics as an academic discipline.
• Explain why ethics is important in the business environment.
• Explain why ethical responsibilities go beyond legal compliance.
• Distinguish the ethics of personal integrity from the ethics of social
responsibility.
• Distinguish ethical norms and values from other business-related norms
and values.
• Describe ethical decision making as a form of practical reasoning.

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 Ethics and Business 1

It takes 20 years to build a reputation and five minutes to ruin it.

If you think about that you’ll do things differently.
Warren Buffett

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 Business Ethics
For business students, ethics is an important field of study.

Business ethics is a process of decision making.

• Business must take ethics into account and integrate ethics into its
organizational structure.

Scandals are brought about by ethical failures and unethical

decisions.
• This text provides a decision-making model that can help analyze avoid
future ethical failures.

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 Levels of Ethical Decision Making
Business ethics involves making decisions at the individual, at
the organizational, and at a broader social and governmental
level.
• As individuals, each person interacts with businesses as customers, as
employees, and as citizens of the countries in which they operate.
• Organizational culture and corporate leadership have important roles to
play in decision making.
• Individual businesses' and industries' decisions are influenced by social,
economic, and political environments.

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 Goals of Business Ethics
• Developing the knowledge base and skills needed to identify
ethical issues.
• Understanding how and why people behave unethically.
• Deciding how one should act, what one should do, and the
type of person one should be as an individual.
• Creating ethical organizations.
• Thinking through the social, economic, and political policies
that we should support as citizens.

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 Making the Case for Business Ethics
Separation thesis: Asserts that ordinary ethical standards should
be kept separate from, and not be used to judge, business
decisions because business has its own standards of good and
bad.
• Remains common in business circles.
• Holds that business ought to be governed by some ethics and some
values.

Both the existence of a firm and the conditions under which it

operates require that decision makers consider the impact of
those decisions on a wide range of stakeholders.
• A business stakeholder is anyone who affects or is affected by decisions
made within the firm, for better or worse.

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 Ethics and Business 2

Ethics is the new competitive environment.

Peter Robinson, CEO, Mountain Equipment Co-op (2000 to 2007)

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 Ethics and the Law 1

Deciding what one should do in business does require

consideration of what the law requires, expects, or permits.

Legal norms and ethical norms are not identical.

Is compliance with the law enough to behave ethically?

• Is the law itself ethical?
• The law may prevent harm, but does it promote "good"?
• Only complying with the law may lead to more regulation.
• Laws may not be in place for new situations.
• Laws may be ambiguous.

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 Ethics and the Law 2

Ethical considerations demonstrate that business cannot avoid

making ethical judgments, even if it is fully committed to obeying
the law.

Many corporations establish ethics programs and hire ethics

officers who are responsible for managing corporate ethics
programs.

Laws offer general rules clarified by legal precedent.

• There is no unambiguous answer for those wishing only to obey the law.

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 Ethics and the Law 3

Risk assessment is a process to identify potential events that

may affect the entity, and manage risk to be within its risk
appetite.
• To provide reasonable assurance regarding the achievement of entity
objectives.
• When the risks involve potential harms and benefits to a variety of
stakeholders, it is a judgment that involves ethics as well.
• Business must take ethics into account and integrate ethics into its
organizational structure.
• But what is ethics?

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 Business Ethics as Ethical Decision Making
• Responsible decision making and deliberation will result in
more responsible behavior.
• Here, ethics refers to how human beings should properly live
their lives.
• The authors’ fundamental assumption is that a process of
rational decision making can and will result in behavior that is
more reasonable, accountable, and ethical.
• Teaching ethics must challenge students to think for
themselves.

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 Business Ethics as Personal Integrity and Social Responsibility 1

Ethics involves asking an important question—how should we

live?
• Philosophers emphasize that ethics is normative, dealing with our
reasoning about how we should act.
• Social sciences also examine human decision making and actions.
• But these sciences are descriptive rather than normative.
• They provide an account of how and why people do act the way they do – they
describe.
• As a normative discipline, ethics seeks an account of how and why people
should act a certain way, rather than how they do act.

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 How Should We Live? 1

If defining "We" individually: Ethics is based on our value

structures:

• Defined by our moral systems;

• and, sometimes referred to as morality.
• Or "personal integrity."

If morals refer to the underlying values on which decisions are

based ethics refers to the application of those morals to the
decisions themselves.

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 How Should We Live? 2

If defining "We" collectively: Refers to how we live together in a

community.
• This area is sometimes referred to as social ethics.
• Here, we judge companies from a social perspective; for their social
responsibility.
• Managerial decisions involve the following aspects of ethics:

• Personal integrity.
• Social responsibilities.

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 Business Ethics as Personal Integrity and Social Responsibility 2

Distinguishing ethics from other practical decisions faced within

business involves two approaches.
• Social-scientific approach: Examines the situation and the decision by
exploring the factors that led to one decision rather than another or by
asking why the manager acted in the way that he did.
• Normative approach steps back from the facts to ask:

• What should I do?

• What rights and responsibilities are involved?
• What good will come from this situation?
• Am I being fair, just, virtuous, kind, loyal, trustworthy?

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 Business Ethics as Personal Integrity and Social Responsibility 3

Ethics is a normative discipline as it deals with norms.

• Norms: Those standards of appropriate and proper (or "normal") behavior.
• Norms establish the guidelines or standards for determining what we
should do, how we should act, and what type of person we should be.
• Normative disciplines presuppose some underlying values.

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 Distinction Between Values and Ethics
Values are the underlying beliefs that cause us to act or to
decide one way rather than another.
• Many different types of values can be recognized.
• Individuals have their own personal values and institutions also have
values—shown in the company’s culture.
• An individual’s or a corporation’s set of values may lead to either ethical or
unethical results.
• One way to distinguish values is in terms of the ends or goals they serve.

Ethical values serve the ends of human well-being.

• Those properties of life that contribute to human well-being and a life well
lived.

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 Ethics as Practical Reason
Ethics is a vital element of practical reasoning—reasoning about
what we should do.
• Distinguished from theoretical reasoning, which is reasoning about what
we should believe.
• Theoretical reason is the pursuit of truth.

There is no single methodology for ethics that works in all

situations, but guidelines provide direction and criteria for
decisions.
• Ethical theories explain and defend various norms, standards, values, and
principles used in ethical decision making.
• The next chapter introduces a model for making ethically responsible
decisions.

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 Ethics and Business 3

No snowflake in an avalanche ever feels responsible.

Voltaire 1694 to 1778

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